Why your retirement probably costs less than you think.

There is a number that looms over retirement planning conversations in New Zealand. You may have seen it cited in media, in KiwiSaver provider materials, or in general financial commentary: the idea that a comfortable retirement requires savings of $1 million, or something approaching it. It is a number that makes many people feel that retirement security is out of reach — and for a significant portion of the population, it quietly discourages the kind of deliberate planning that would actually make a difference.

The number is almost certainly too high. And the reason it's too high reveals something important about how most retirement planning tools — and most of the financial services industry — think about spending in retirement.

The assumption most calculators get wrong

The vast majority of retirement calculators, savings guidelines, and industry benchmarks share a common assumption: that your spending in retirement will remain constant in real terms throughout your retirement. In other words, that the income you need at 70 will be the same, adjusted for inflation, as the income you need at 85.

It is a convenient assumption. It makes the maths straightforward. And the evidence suggests it is wrong.

In December 2024, the Retirement Income Interest Group of the New Zealand Society of Actuaries published a detailed analysis of how New Zealand retirees actually spend through retirement, drawing on Stats NZ Household Expenditure Survey data as well as studies from Australia, the US, and the UK. The findings were consistent across all of them: real spending — that is, spending adjusted for inflation — tends to reduce meaningfully as people move through retirement. In New Zealand, the data suggests a typical reduction of around 2% per year in real terms.

The pattern makes intuitive sense. Retirees in their late 60s and early 70s tend to be active — travelling, pursuing interests, spending on transport and recreation. As they move into their late 70s and 80s, that discretionary spending naturally reduces. Not because people are forced to cut back, but because their lives genuinely cost less to sustain.

What this means for the number

The implications for retirement savings targets are significant. The actuaries' report illustrated this clearly: if you assume spending stays constant in real terms, a single person might need a savings balance of around $605,000 at 65 to top up NZ Super to a comfortable income level. But if you allow for real spending to reduce by 2% per year — which the evidence suggests is a reasonable and even conservative assumption — that balance drops to around $375,000. A reduction of roughly 40%.

That is not a small adjustment. It is the difference between a target that feels genuinely out of reach for most New Zealanders and one that, with deliberate planning, is achievable for many more people than currently believe it is.

How ThatDay thinks about this differently

Most retirement planning platforms present a single, fixed spending figure that is assumed to hold throughout retirement. ThatDay takes a different approach — one that reflects how people actually live.

Rather than assuming a constant rate of spending growth through retirement, ThatDay assumptions use a stepped model that accounts for the reality that spending patterns change over time. This produces a more accurate and — for most people — a more encouraging picture of what retirement actually requires.

This matters for two reasons. First, it means the lump sum target ThatDay shows you is likely to be more realistic than the figures produced by tools built on constant-spending assumptions. Second, it means the regular savings required to reach that target — the amount you need to put away each week or month — is also likely to be lower than you may have been led to believe.

A more honest picture is also a more motivating one

There is something worth naming about the effect of oversized retirement targets on people's behaviour. When the number feels impossibly large, many people disengage. They assume the goal is out of reach and conclude — consciously or not — that there is no point trying. This is exactly the wrong response to a problem that is, for most people, genuinely solvable.

A more accurate target is not just technically better. It is more motivating. Seeing a realistic number — one derived from how people actually spend in retirement rather than a worst-case assumption — tends to produce a different response: this is possible, and here is what it takes.

This is one of the reasons ThatDay was built the way it was. Not to minimise the challenge of retirement planning, but to present it honestly — and to show, as explored in the retirement strategy nobody talks about, that the same choices that build financial freedom are the ones that tread more lightly on the world. And to show people that the gap between where they are and where they need to be is, in most cases, considerably more closeable than the industry's standard numbers suggest.

The connection to conscious spending

There is one further dimension worth considering. The evidence that real spending reduces through retirement is partly a reflection of something ThatDay has always believed: that as people age and their priorities clarify, the things that genuinely matter to them tend to cost less than the things that filled that space earlier in life.

The retiree who has spent years developing a conscious relationship with spending — who knows what genuinely adds to their life and has let go of the rest — tends to arrive at retirement already living in a way that is naturally less expensive to sustain.

Consuming less, as ThatDay has always argued, is not a sacrifice. It is a more fulfilling way of living — and the retirement numbers reflect that.